Note: Last year’s balance is assumed to be paid and current year’s balance is assumed to be provisioned.

Adjustment related to share capital & debentures

Share capital and debentures are the sources of funds in funds flow statement. Premium or discount on shares or debentures is calculated as below:

Dr. Preference shares/Debenture a/c Cr.

Particulars

Rs.

Particulars

Rs.

To Cash (redemption)

To Discount on redemption

To Balance c/d

xxx

xxx

xxx

By Balance b/d

By Premium on redemption

By Cash (issue)

xxx

xxx

xxx

xxx

xxx

Dr. Share capital a/c Cr.

Particulars

Rs.

Particulars

Rs.

To Balance c/d

xxx

By Balance b/d

By Stock dividend/Bonus share (if)

By Cash (issue)

xxx

xxx

xxx

xxx

xxx

Dr. Adjusted P/L a/c Cr.

Particulars

Rs.

Particulars

Rs.

To Premium on redemption

To Stock dividend/Bonus share (if)

xxx

xxx

By Discount on redemption

xxx

xxx

xxx

Funds Flow statement

Sources of fund

Rs.

Uses of fund

Rs.

Issue of shares/debentures/capital

xxx

Redemption on shares/debentures

xxx

xxx

xxx

Illustration:

Liabilities

2072 (in Rs.)

2073 (in Rs.)

Equity share capital

12% preference share capital

7% debenture

3,00,000

2,00,000

2,50,000

5,50,000

1,80,000

1,50,000

Required:

Equity share capital a/c

12% preference share capital a/c

7% debenture a/c

Solution:

Dr. Equity share capital a/c Cr.

Particulars

Rs.

Particulars

Rs.

To Balance c/d

5,50,000

By Balance b/d

By Cash (issue)- bal. figure

3,00,000

2,50,000

5,50,000

5,50,000

Dr. 12% Preference shares a/c Cr.

Particulars

Rs.

Particulars

Rs.

To Cash (redemption)

To Balance c/d

20,000

1,80,000

By Balance b/d

2,00,000

2,00,000

2,00,000

Dr. 7% debentures a/c Cr.

Particulars

Rs.

Particulars

Rs.

To Cash (redemption)

To Balance c/d

1,00,000

1,50,000

By Balance b/d

2,50,000

2,50,000

2,50,000

Adjustment related to interim dividend

Interim dividend is the dividend paid out by the company to its shareholders, before the determination of it’s current year profit. It is added back with profit for the year and goes to (+) in funds from operation and goes to (-) in funds flow statement because it is an application of funds.

Funds from operation

xxx (Adj. P/L a/c – Dr. side)

Funds flow statement

xxx (Uses side)

Adjustment related to Investment account (non-depreciable)

Investments can be either current assets or fixed assets. Investments are treated as fixed assets if they are on long term run, such as trade investments. On the other hand, if they represent surplus, temporarily invested in marketable securities, they are current assets.